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5 ways to source money for business

26 September, 2012

It matters how much money you pump into your business and where the money comes from. While investing your own capital in a venture of your own is great because you can treat it as a loan that you have to repay and use the money that you would normally repay towards a loan to reinvest in your business and add value to it. However, there will be times when you might need to borrow money to raise capital for your business. We explain here five sources of funds you could consider to raise capital for your business.

Getting loans against Home equity

Home equity is great collateral for business loans in Australia due to the costly property market. The more of your mortgage you pay up the more of the home you own. This part of the ownership is called your “equity” or share in the property.

There are occasions when falling back on loans you get against home equity seems like a plausible idea. Businessmen running reasonably healthy enterprises, or businessmen who have a lot of home equity without other financial obligations to take care of, are ideal candidates who can avail of home equity loans. In some cases, businessmen who have exhausted their line of credit from banks or have maxed out their credit cards to stabilize the financial situation of their business have a great source of credit in their home equity.

Cashing in on investments

If you have any investments such as fixed term deposits, property, stocks and shares, bonds or even jewellery, you could put them up as collateral to get a loan that can be used to expand your business. Lenders usually agree to disburse as much as 90 percent of the value of the collateral.

Retirement plans

While savings for retirement should not be touched, least of all invested in a business, this is a great source of cash and that too at a lower interest rate than the present business debt demands. However, as a business owner you should never withdraw monies from a retirement plan unless you are 100 percent certain of repaying the amount. Also, you should know that if you make withdrawal from your retirement plan the amount will be taxed and will also attract a penalty that could be as high as 10 percent of the amount withdrawn.

Falling back on your savings

Businessmen must limit their contributions in the following way: If you have crossed the age of 50, never invest more than 15 percent of your retirement savings in a business; those between 30 and 50 should invest approximately 25 to 30 percent of savings that you do not plan to channel towards your retirement fund. Business owners who are between the 20 to 30 ranges can be a little more enterprising when it comes to dipping into their retirement funds.

Asking others for help

After tapping all your resources in a responsible way and even then fail to come up with the resources you need, you could consider tapping friends and relatives for some cash to revitalize your business. If asking for a small business loan for Australians fails, you could try to sell them the idea of buying into your business as partners. Quite lot of investors would rather buy equity in lucrative businesses; friends and even colleagues may consider investing in your business for a little higher rate of interest compared to what they would normally receive from other investments.

Tip:

Loan terms that allow business owners turn a portion or the entire debt equity when they want is ideal. This way, businessmen enjoy the flexibility of being able rope in professional financiers or private investors who want to see a cleaner balance sheet that has considerably fewer debts a pre-condition to invest in the company.